In the context of the unemployment insurance program, which of the following best describes an indirect incentive created by the program?

• A. It may encourage some individuals to remain unemployed longer than they otherwise would.
• B. It provides direct financial support to those who have lost their jobs.
• C. It requires employers to pay higher taxes to fund the program.
• D. It guarantees job placement for all unemployed individuals.

Answer: (A)

Verified step by step guidance

1. Understand the difference between direct and indirect incentives in the context of unemployment insurance. A direct incentive is an immediate effect, such as providing financial support to unemployed individuals.
2. Identify the direct incentive in the problem: the program provides direct financial support to those who have lost their jobs, which is a straightforward benefit.
3. Consider what indirect incentives are: these are unintended or secondary effects that influence behavior. In this case, think about how receiving unemployment benefits might affect an individual's motivation to find a new job quickly.
4. Analyze the statement that the program may encourage some individuals to remain unemployed longer than they otherwise would. This is an indirect incentive because it changes behavior by potentially reducing the urgency to seek employment.
5. Compare the options and recognize that the indirect incentive is best described by the effect on individuals' job search behavior, not by direct financial support, employer taxes, or guaranteed job placement.